Decreasing Debt

We have a plan!

My husband and I really want to get rid of our debt. We don’t have any running credit card balances, but we have a lot of loans. These loans include a personal loan (for our recent bathroom repairs), four student loans, and a mortgage.

It can be overwhelming keeping track of all of this debt, making sure all six payments are made on time and in full, and then having less than 50% of take-home pay to work with for the rest of the month.

We actually started our plan last year, paid off two small student loans, and then kind of lost it. This year, we are back on board with the plan. We have to make some sacrifices, like only going out to eat once or twice per month (I think that’s where we lost it last year), but the feeling of conquering those two loans was awesome and I want to conquer MORE (so I will be left with less).

Okay. So. The plan.

  1. Make the minimum payments for all debts every month. This is very important. This will prevent us from owing any more than we already do as we work on paying down all of the debts at the same time.
  2. Put any extra money available from the monthly budget toward the smallest debt. The smallest debt is the easiest to surmount and will give a boost of confidence to keep moving forward. Plus there is one less debt, one less sum collecting interest, and one less payment to worry about each month. Paying off the smallest debt first increases confidence and decreases stress. NOTE: If you are working to pay off credit card debts, paying off the card with the highest interest rate first may make more sense than paying off the card with the smallest balance, especially if the balance amounts are pretty similar, and especially especially if the interest rates are very different. You may have to do some math.
  3. Pay off that small loan! We already did this last year with two tiny loans, leaving us with two less monthly payments. Kuzzah! Which brings us to…
  4. Continue dedicating any debt payments towards paying down debt. Even though we have two less monthly payments, we still pay those amounts towards debts. We just added that money on to the next smallest loan, i.e. the current smallest loan still in repayment. (Or the debt with the next highest interest rate.) This is basically Step Two, except it isn’t really “extra” money. It’s money that was budgeted for paying down debt anyway. If you find you do still have any extra money in your budget, put it towards paying down this debt now.
  5. Continue Steps Three and Four until you are DEBT FREE!

I made a little spreadsheet for tracking our debt and accumulating payments. It keeps us on target by showing how achievable our goals are. It will still take time, but much less than only ever paying the minimum.

This system is working for us. If you want more information, the above plan was based off of Dave Ramsey‘s “Debt Snowball” that he describes in his book The Total Money Makeover. It’s a simple concept that is adaptable to different kinds of debt and different incomes (as long as the income is sufficient enough to cover Step One — if it’s not, you may want to talk to a financial advisor).


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